10-Q: Webstar Technology Group Pivots to Real Estate Amidst Severe Financial Distress and Going Concern Warning

Webstar Technology Group, Inc. reported a significantly reduced net loss for Q1 2025, driven by lower operating expenses, as it transitions its business model from software to specialty real estate development, while facing substantial doubt about its ability to continue as a going concern.

Summary

• Webstar Technology Group has strategically shifted its business focus from software solutions to early-stage specialty real estate development, concentrating on green/energy-efficient multitenant buildings and entertainment/resort projects.
• The company reported a net loss of $61,378 for the three months ended March 31, 2025, a substantial improvement compared to a net loss of $224,941 for the same period in 2024.
• Operating expenses decreased significantly by 79.8%, falling to $41,378 in Q1 2025 from $204,941 in Q1 2024, primarily due to a related party assuming accrued salaries and related expenses.
• No revenue or cost of sales were generated for either the three months ended March 31, 2025, or 2024.
• The cash balance increased slightly to $259 as of March 31, 2025, up from $20 at December 31, 2024.
• The accumulated deficit grew to $47,698,762 as of March 31, 2025, and the working capital deficit increased to $1,134,614.
• Net cash used in operating activities increased to $31,341 in Q1 2025 from $2,110 in Q1 2024, indicating a higher operational cash burn.
• The company secured $49,800 in new short-term loans payable from a third party during Q1 2025.
• In January 2025, $8,000 in convertible notes were converted into 114,286 common shares.
• On March 6, 2025, 2,000,000 shares of common stock were cancelled in conjunction with an asset purchase agreement.
• A new subsidiary, Forge Atlanta Asset Management LLC (80% owned), was formed for a 10-acre mixed-use real estate development in Downtown Atlanta, with a non-binding Letter of Intent signed to acquire the property for $33,000,000.
• A Regulation A Offering was filed with the SEC on March 17, 2025, aiming to raise up to $10 million at $7 per share, but it has not yet been declared effective.

Sentiment

Score: 2

Explanation: The company faces severe liquidity issues, a substantial going concern doubt, and has no revenue. While it has reduced its net loss and is pursuing a new business direction with a significant real estate project, the financial foundation is extremely weak, and future funding is uncertain. The identified material weaknesses in internal controls further compound the negative sentiment.

Positives

• Net loss significantly reduced to $61,378 in Q1 2025 from $224,941 in Q1 2024, representing a substantial improvement in bottom-line performance.
• Operating expenses decreased substantially by 79.8% ($163,563) in Q1 2025, primarily due to a related party assuming significant accrued liabilities.
• Successful formation of Forge Atlanta Asset Management LLC, a new subsidiary focused on a significant 10-acre mixed-use real estate development project in Atlanta, signaling a clear strategic direction.
• Secured new short-term loans of $49,800 and converted convertible notes, indicating some ability to attract capital, albeit with high conversion rates.

Negatives

• No revenue has been generated since the company's inception, highlighting a fundamental lack of commercial operations and a pre-revenue stage.
• The company has an accumulated deficit of $47,698,762 as of March 31, 2025, indicating significant historical losses.
• The working capital deficit increased to $1,134,614 as of March 31, 2025, reflecting a deteriorating short-term liquidity position.
• Net cash used in operating activities increased to $31,341 in Q1 2025, indicating an increased cash burn from core operations.
• Existing cash of $259 is critically low and explicitly stated by management as insufficient to fund operations for at least the next twelve months, raising substantial doubt about the company's ability to continue as a going concern.
• A $1,000,000 convertible note payable to a related party, plus $75,358 in accrued interest, is due on demand, posing an immediate and significant liquidity risk.
• The Regulation A Offering for $10 million, a key financing initiative, is not yet effective, and no shares have been sold, creating uncertainty around future funding.
• Material weaknesses in internal control over financial reporting were identified, including a lack of risk assessment, inadequate entity-level controls, insufficient system/manual controls, and a lack of segregation of duties, which could compromise financial reporting reliability.

Risks

• Substantial doubt exists regarding the company's ability to continue as a going concern due to insufficient revenues, a large accumulated deficit, a significant working capital deficit, and critically limited cash reserves.
• The company's continued operations are highly dependent on its ability to raise additional capital through future equity offerings, debt financings, or strategic relationships, with no assurance that such financing will be available on acceptable terms or at all.
• Failure to secure additional funding could force the company to delay, scale back, or eliminate some or all of its business plans, which would likely have a material adverse effect on its operations and financial condition.
• There is a risk that the Regulation A Offering may not be declared effective by the SEC or that the company may not be able to sell shares under the offering.
• Material weaknesses in internal control over financial reporting, including a lack of risk assessment, inadequate entity-level controls, insufficient system/manual controls, and insufficient segregation of duties, could adversely affect the company's ability to accurately record, process, summarize, and report financial information.
• The $1,000,000 convertible note payable and its accrued interest are due on demand, presenting an immediate and significant liquidity challenge.
• The remaining $325,000 payment for the Series A Preferred Stock has not been remitted to Mr. Owens, who retains voting control while the stock is in escrow, potentially impacting corporate governance and future strategic decisions.
• The company has a limited operating history in its new real estate development business, making it difficult to evaluate its future performance and increasing the inherent risks associated with establishing a new enterprise, including limited capital resources and potential cost overruns.

Future Outlook

Management believes existing cash is insufficient to fund operations for at least the next twelve months and intends to raise additional capital through a public offering (Regulation A Tier II offering for up to $10 million at $7 per share, not yet effective) or an asset sale transaction. The Company plans to purchase approximately $50,000 of equipment for business expansion in the next twelve months. The Forge Atlanta project is expected to close land purchase by November 25, 2025, with an option to extend to February 6, 2026.

Management Comments

• Management believes that the existing cash at March 31, 2025 will not be sufficient to fund operations for at least the next twelve months following the issuance of these financial statements.
• Management is actively pursuing financing but can provide no assurances that such financing will be available on acceptable terms, or at all.
• Without this funding, the Company could be required to delay, scale back or eliminate some or all of its business plans which would likely have a material adverse effect on the Company.
• Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.
• Despite the material weaknesses reported above, our management believes that our condensed financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

Industry Context

Webstar Technology Group is undergoing a significant strategic pivot from software solutions to specialty real estate development, focusing on green/energy-efficient multitenant buildings and entertainment/resort properties. This move positions the company in a capital-intensive industry, requiring substantial financing for project acquisition and development. The Forge Atlanta project, a 10-acre mixed-use development, aligns with urban revitalization and smart growth trends seen in major metropolitan areas, particularly in the Southeast U.S. The shift also implies a departure from its original technology focus, entering a competitive real estate market that demands strong capital access and development expertise.

Comparison to Industry Standards

• As an early-stage specialty real estate development company with no revenue generated since inception, direct comparison to established industry standards or specific comparable companies is challenging.
• The company's financial performance, characterized by an accumulated deficit of over $47 million and a working capital deficit of over $1.1 million, is typical of a pre-revenue startup, but also highlights significant financial instability.
• The Forge Atlanta project, with a $33 million acquisition price, is a substantial undertaking for a company with limited cash and a going concern warning, making its successful execution a critical benchmark for future viability rather than a comparison to current industry project success rates.

Management Changes

Corporate Governance

Legal Proceedings

• Not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on the business, prospects, financial condition, or results of operations.

Related Party Transactions

• Sale of 100% of Series A Preferred Stock by Frank T. Perone Irrevocable Trust (controlled by former CEO James Owens) to new Purchasers for $500,000, with $325,000 still outstanding and Mr. Owens retaining voting rights while stock is in escrow.
• Acquisition of contracts from Electrical and Compression Optimization, Inc. (ECO), owned and controlled by James Owens, in exchange for 201,057,278 common shares issued directly to Company stockholders.
• Acquisition of licenses for Gigabyte Slayer and WARP-G software from Webnet Technologies Incorporated, owned and controlled by James Owens, in exchange for Webnet assuming $3,317,472 in accrued salaries and related expenses and a $22,869 cash payment to Webstar's accounts payable.
• Acquisition of assets and intellectual property of Bear Village, Inc. from Thunder Energies Corporation, an entity owned and controlled by the Purchasers of the Company's Preferred Stock, in exchange for 201,057,278 shares of common stock.
• Repayments totaling $26,220 (Q1 2025) and $49,990 (subsequent to Q1 2025) against advances from an entity controlled by the Purchasers.
• A $1,000,000 convertible note payable, originally issued to Mr. Owens (and subsequently transferred to his Trust, then to Mr. Hendrickson), with $75,358 in accrued interest, is due on demand.
• Settlement of $427,863 of outstanding liabilities due to the Trust (controlled by Mr. Owens) with 42,786,278 shares of common stock on June 3, 2024.
• License agreement with Soft Tech Development Corporation (owned by James Owens) for Gigabyte Slayer and WARP-G software, with contingent licensing fees of $1,300,000 and a 7% royalty rate, though no amounts paid as triggering events have not occurred.

Stakeholder Impact

• Shareholders face significant dilution risk from potential future equity raises and past conversions of notes into common stock. The explicit going concern warning poses a substantial risk to investment value. The Series A Preferred Stock arrangement means Mr. Owens retains voting control despite the sale, impacting common shareholders' influence.
• Employees may be affected by the past assumption of accrued salaries and related expenses by a related party, which could influence future compensation structures. A new management team is in place following the strategic shift.
• Creditors face significant risk, particularly with the $1,000,000 convertible note payable and accrued interest being due on demand, which challenges the company's ability to meet its obligations. New short-term loans add to the overall debt burden.
• Customers are not directly impacted as the company currently generates no revenue. Future customers for real estate projects will depend entirely on the successful development and financing of these new ventures.
• Suppliers face potential risks of delayed payments or non-payment due to the company's severe liquidity issues and the explicit going concern warning.

Next Steps

• Secure additional capital through equity offerings, debt financings, or strategic relationships to fund operations and address the going concern issue.
• Execute the Regulation A Tier II offering to raise up to $10 million, contingent on SEC effectiveness.
• Proceed with the acquisition and redevelopment of the Forge Atlanta project, including paying earnest money and closing the land purchase by November 25, 2025 (or extended to February 6, 2026).
• Implement remediation plan for identified material weaknesses in internal control over financial reporting, including appointing additional qualified personnel and modifying financial controls.
• Purchase approximately $50,000 of equipment for business expansion within the next twelve months.

Key Dates

Recommendation

Keywords

Real Estate Development, SEC Filing, 10-Q, Going Concern, Financial Report, Quarterly Results, Corporate Governance, Capital Raise, Mixed-Use Development, Atlanta Real Estate, Convertible Notes, Startup, Emerging Growth Company, Liquidity Risk